Telstra deal may shrink federal coffers

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THE loss of billions of dollars of Telstra dividend payments
means the Government will have to run down budget surpluses or
spend less on health, education and infrastructure, Finance
Minister Nick Minchin has suggested.

Telstra's full sale would involve a "fiscal tightening",
implying less cash would be available for other spending
priorities.

"We have been up-front about the fact that this policy involves
an implied fiscal tightening," Senator Minchin said yesterday.

The Government's 6.4 billion Telstra shares, valued at $31
billion at today's prices, generate dividend payments that swell
the budget bottom line by about $1.5 billion a year.

But unlike the previous two Telstra share floats, the proceeds
from the sale of the remaining 51.8 per cent stake will not be used
to pay off debt. That means there will be no interest saving to
offset the lost dividends.

After spending about $3 billion on rural telecommunications to
appease the Nationals, the remaining money will instead be
quarantined in the Government's "future fund", set up to cover the
superannuation entitlements of public servants.

Opposition finance spokesman Lindsay Tanner said the plan would
put the budget under pressure. "While the commodities boom drives
up taxation revenue, the Telstra sale deal will not have an obvious
impact," Mr Tanner said. "In the event of an economic downturn, the
Government's budgetary flexibility will be reduced
significantly."

Senator Minchin has signalled the Government may only sell a
portion of its shareholding, with any leftover shares warehoused in
the future fund.

The sale itself is expected to cost hundreds of millions of
dollars in fees paid to investment banks.

Senator Minchin said yesterday there was no target share price
for the sale, even though a target of $5.25 was implied in previous
budgets.

Treasurer Peter Costello said the Government would settle on a
target share price when it was ready to sell its remaining
stake.

Analysts believe the Government may be forced to accept a share
price of $5  well below the $7.40 paid by investors in the
second tranche in 1999, at the height of the technology boom.

In other developments:

■ Prime Minister John Howard pounced on an admission by
Labor's communications spokesman, Stephen Conroy, that "it makes no
difference to the majority of Australians about the
ownership structure". "I say to Senator Conroy, thank you for your
candour, thank you for stating the obvious," Mr Howard told
Parliament.

■ Nationals senator Barnaby Joyce, who strongly backs the
deal, continued to declare that his final position will depend on
the Queensland National Party.

He said yesterday he would take the deal back to Queensland and
"if the Queensland Nationals knock it out, it's knocked out. I will
follow their lead." But he added: "If it's knocked out, we'll be
losing the best deal ever cut for regional and rural
Australia."

■ Nationals backbencher Paul Neville reserved the right to
vote against the sale if the $1.1 billion of target funding and $2
billion capital fund for rural phone services did not meet his
concerns.

"I reserve my position on the $1.1 billion," Mr Neville said. "I
want to be absolutely certain that that leverages up enough
investment  either by Telstra or private providers  so
that we get an outcome of perhaps about $5 billion."

■ Rural Queensland MP Warren Entsch suggested that Barnaby
Joyce should not claim all the credit for the deal.

"The reality is we've been negotiating these outcomes for rural
and regional Australia for the last seven and eight years," Mr
Entsch said.

"And I think that it's a joint effort by a hell of a lot of
people  Liberal and National Party people  that can
claim credit for all the gains in the bush over the last nine or 10
years."